WORLD TRADE  
ORGANIZATION  TN/RL/W/180 
13 May 2005 
 (05-1940) 
Negotiating Group on Rules Original:   English 
 
 
SUBMISSION ON REGIONAL TRADE AGREEMENTS 
BY AUSTRALIA 
 
Paper by Australia  
 
The following submission, dated 12 May 2005, is  being circulated at the request of the 
Delegation of Australia. 
_______________ 
 
 
FURTHER SUBMISSION ON REGIONAL TRADE AGREEMENTS 
BY AUSTRALIA 
 1. This communication responds to the comments and requests for clarification by Members in relation to Australia’s second submission on th e definition of ‘substantially all trade’ 
(TN/RL/W/173/Rev.1).
*   
 Introduction 
 
2. The principle of non-discrimination, or most-favoured-nation (MFN) is at the heart of the multilateral system.  There are few WTO-sancti oned exceptions, and Article XXIV is amongst the 
most important.   
 
3. MFN has today become almost the exceptional level of trade preference between trading partners.  The need to clarify the rules applied to  the examination of RTAs in the WTO is urgent.  
RTAs that are not comprehensive and not subject to meaningful review and effective disciplines 
damage the multilateral trading system by providing comfort to protectionist elements while satisfying to some extent the elements in suppor t of liberalisation.  Such RTAs reward anti-
liberalisation elements and undermine the constituency for multilateral liberalisation.  
 
Eliminating all duties on a minimum of at least 95 percent of tariff lines  
 
4. It is in this context that Australia propo sed a definition of ‘substantially all trade’ as 
eliminating all duties on a minimum of 95 percent of tariff lines at the six digit level of the 
Harmonised System (HS).  While the figure has been described as ‘ambitious’, we firmly believe it is 
necessary to ensure the integrity of  the multilateral trading system.   
 5. In these negotiations we have the opportunity to establish benchmarks of real importance to 
the multilateral trading system.  Weak internationa l obligations are readily exploited by interests 
opposed to trade liberalisation.  A test for ‘substan tially all trade’ that allowed significant omissions 
from RTAs would encourage poor quality RTAs.  Conve rsely, a rigorous definition of ‘substantially 
all trade’ would strengthen the position of govern ments in committing to trade liberalisation, and 
assist them to undertake often overdue domestic reforms. 
                                                     
 
* In English only. TN/RL/W/180 
Page 2  
 
  
6. Combined with the flexibility of a ten year implementation or transition period, the ability to 
exclude from liberalisation commitments a full five per cent of tariff lines represents a pragmatic solution to the need for a discipline that both supp orts the multilateral trading system while providing 
adequate flexibility to accommodate reservati ons related to the most sensitive products. 
 
At least 70 percent of tariff lines at entry into force 
 
7. By October 2004 there were 300 RTAs that ha d been notified to the GATT or WTO.  Of 
these, 150 were operational.  By the end of 2007 th ere are likely to be 300 operational RTAs.  Such 
prodigious growth in RTAs, if not subject to prudent disciplines, coul d dramatically erode the impetus 
for trade liberalisation at the multilateral level.    8. It is therefore necessary to establish a disci pline that establishes a rigorous standard that 
would apply at the time of entry into force of the agreement.  This standard needs to be sufficiently 
high to ensure that RTAs are comprehensive and do not ‘backload’ an unreasonable amount of 
liberalisation commitments to the end of the implementation period.    9. Accordingly, Australia has proposed a standard of at least 70 percent tariff coverage at the six 
digit level on entry into force.  Again, we believe  this to be a pragmatic proposal that balances the 
need for a rigorous discipline to ensure RTAs are supportive of the multilateral trading system, while 
retaining adequate flexibility for Members to accommodate the treatment of sensitive products. 
 
Calculation of Tariff Coverage 
 
10. Australia’s tariff line proposal has two important dates:  
 
(i) on entry into force: duties must be eliminated on at least 70 percent of all tariff lines 
at the six digit level;  and 
(ii) precisely 10 years after entry into force of  the agreement: bindin g commitments in the 
agreement must indicate that duties will be eliminated on at least 95 percent of all tariff lines at the six digit level. 
These conditions apply to all parties to the agreem ent.  Where a Customs Union is a party to a 
plurilateral agreement, the Customs Union as a whole can be treated as a single Party.    11. In the calculation of these tests, Australia has proposed using the six digit level of the 
Harmonised System, as it is important to apply intern ationally recognised and adopted standards.  The 
Harmonised System is the only inte rnationally recognised standard in this regard, and WTO Members 
are harmonised at the six-digit level.  To satisfy th e proposed definition of ‘substantially all trade’, all 
duties and tariff rate quotas (TRQs) on tariff lines at a higher level of disaggregation (i.e. 8 and 10 
digit levels) that are constituent parts of a six digit line must be eliminated if that six digit line is to be 
considered part of the 70 percent on entry into force or 95 percent after 10 years.   
 ‘Highly traded’ products  
 
12. We have been cautious about including a tr ade based test as trade flows are subject to 
fluctuation.  This is especially so with the im plementation of RTAs, where trade flow quantities and 
patterns can be expected to be significantly influenced.  
 
  TN/RL/W/180 
 Page 3 
 
 
 13. However, we recognise that a tariff line test al one may not capture ‘substantially all trade’ in 
all cases.  Accordingly, we also proposed a “hig hly traded” product test.  This test attempts to 
overcome the difficulties associated with a trade flow an alysis (i.e. fluctuations in trade from year to 
year) by using as its base period the three years be fore entry into force of the agreement.   
 
14. Using this three year base period, we propose two options to define a “highly traded” product: 
 
(i) where the value of a Member’s imports in any single HS six digit line as a proportion 
of their total imports from the RTA partner exceeds 0.2 percent (this figure would be the average over the three year base period);  or 
(ii) a requirement that the top, say 50, imports of  each RTA party at the 6-digit level that 
are traded between the RTA partners must be included in the Agreement.  Any product that is considered a “highly traded” product must be included in the agreement, i.e. duties must be eliminated on these products by the ten year transition 
period.   
15. The “highly traded” product test would be applie d on entry into force.  This means the base 
period for measuring the trade would be the three ye ars immediately preceding entry into force.  Any 
product that meets the “highly traded” product test w ould have to be included in the lines that are 
presently or prospectively scheduled for duty elim ination by the end of the ten year period. 
 
Products that Members currently do not, but coul d trade, if it were not for the protectionist 
measures of one or more of the parties 
 
16. In TN/RL/W/173/Rev.1
* Australia proposed this could involve an analysis of the overall 
export trade of each Member.  Our objective in this pr oposal is to enable Member s to be aware, in the 
context of an RTA examination, of the products that  are not traded as a result of protectionism by one 
of the parties.   
 17. Our proposed methodology for identifying such trade is to examine the global exports of the parties to the agreement and examine whether the si gnificant exports of each party is subject to the 
elimination of duties by the other parties, even if  the other parties are historically not markets for 
those products.  We would define ‘significant ex ports’ as products which represent at least two 
percent of a party’s total exports in value at the si x digit level.  The period for this calculation would 
again be a base period of three years prior to the entry into force of the agreement.  The required 
information could be obtained from the United Nations Commodity Trade Statistics Database 
(Comtrade). 
 
Ten year phase in  
 
18. Several Members expressed support for this  position, while a few Members expressed 
concern that 10 years may be inadequate to accomm odate the treatment of some products in their 
RTAs.  However, the current practice of Members notifying RTAs with substantial amounts of trade 
subject to implementation or transition periods has no  legal basis.  Only those agreements notified as 
interim agreements can take advantage of the ten year implementation period, and those agreements 
are required by Article XXIV.5(c) to ‘include a plan and schedule’ for the formation of the RTA 
within a ‘reasonable length of time’ (i.e. within 10 years - paragraph 3 of  the Understanding on the 
Interpretation of Article XXIV of the GATT).  Th erefore, an RTA notified under Article XXIV, but 
not notified as an interim agreement, should be assessed on its trade coverage and compliance with 
the requirement of eliminating duties on substantially all trade at the time of entry into force.   
                                                     
 
* In English only. TN/RL/W/180 
Page 4  
 
  
19. As it is only those RTAs notified as interim ag reements that have legal cover in Article XXIV 
for an implementation or transition period, Australia’s  proposal of using that period as a precedent or 
guide for establishing a legal accommodation of an existing practice by Members is in itself an 
important improvement in the WTO disciplines for the assessment of RTAs. 
 
20. There is an important logic to the relations hip between RTAs that are merely notified and 
RTAs that are notified as interim agreements.  Th e provision for interim agreements clearly envisaged 
the need for the flexibility mentioned above, and in  providing it, imposed the additional requirement 
of plans and schedules to demonstrate that th e agreement would satisfy the requirement of 
‘substantially all trade’ within ten years.  It woul d therefore seem illogical if agreements not notified 
as interim agreements were to be afforded greater flexibility than interim agreements, such as phased 
in periods longer than ten years, without havi ng the added disciplines in Article XXIV.5(c) of 
providing a plan and schedule.  This would make interim agreements irrele vant, and undermine the 
prudent balance of flexibility with commensurate disciplines.   
 
21. Therefore, for RTAs not notified as interim ag reements it is important to establish a discipline 
that accommodates existing practice, while not afford ing greater flexibility than Article XXIV.5(c), 
which is the provision of Article XXIV that was e xpressly designed to afford that flexibility through 
interim agreements.  We are not persuaded by the vi ew that ten years is an inadequate implementation 
or transition period for RTAs not notified as interi m agreements.  Where Members insist there is a 
need for an implementation or transition period great er than 10 years our view is that in the first 
instance they should support this proposal in order to provide a legal basis for the existing practice by Members of an implementation or transition period.   Under our proposal it is possible to have a 
commitment phased in beyond ten years, provided 95 percent of tariff lines at the six digit level is liberalised by the end of 10 years.  If a Member finds they need longer than 10 years to phase in 
commitments in order to meet the 95 percent requi rement, our view is that such Members should 
notify their agreement as an interim agreement an d avail themselves of Article XXIV.5(c), where 
according to paragraph 3 of the Understanding on the Interpretation of Article XXIV of the GATT, 
they could, in exceptional circumstances, exceed 10 years provided they also comply with the 
associated disciplines of providing plans and schedules to support their claims.   
 
Special and Differential treatment 
 
22. Australia reaffirms its willingness to cons ider S&D-specific provisions in enhanced 
disciplines for RTAs.  Such provisions would be negotiated and applied to  all developing countries 
whose RTAs are notified under Article XXIV of the GATT. 
 
Application of Clarified Rules    
 
23. Any clarification or improvement of GATT Ar ticle XXIV must apply to all agreements in 
force at that time.  Older RTAs not in force at th at time would not be subject to new disciplines.   
 
 
__________